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Bear of the Day: Chuy's Holdings (CHUY)

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Based in Austin, Texas, Chuy’s Holdings Inc. (CHUY - Free Report) owns and operates full-service restaurants with a Mexican-focused menu. Menu items include appetizers, soups and salads, tacos, burritos, enchiladas, fajitas and combination platters. Chuy’s operates chains throughout Texas, Alabama, Indiana, Kentucky, and Tennessee.

Shares of CHUY have experienced a rocky stretch lately, falling almost 19% in the past three months, and mixed results in Chuy’s third-quarter earnings report didn’t much help the stock.

Q3 Earnings In-Depth

Earnings of 20 cents per share missed the Zacks Consensus Estimate of 29 cents per share.

Revenues grew less than 10% to $101 million, also missing our consensus estimate. Analysts were hoping to see 13% year-over-year gains,

Comparable restaurant sales were up only 0.5% from the year-ago period.

During Q3, Chuy’s was impacted by poor weather conditions including heavy rains in Texas and Hurricane Florence in the Southeastern U.S. This mirrors the sales disruption the company experienced last year in Q3 due to Hurricanes Harvey and Irma.

The Tex-Mex chain said that patio sales plummeted 18% this quarter because of bad weather; patio sales are a big source of revenue for the restaurant company.

As a result, Chuy’s cut its guidance for the full-year. EPS projections were slashed by over 20 cents, and earnings are now anticipated to fall between $0.88 and $0.92 per share. Comps are expected to be flat, compared to previous guidance of a 1% gain.

It didn’t take long for analysts to lower their estimates for fiscal 2018, and five have slashed their earnings outlook in the last 60 days; our consensus has fallen 17 cents from $1.10 to $0.93. Earnings are expected to decline around 3% for this time period.

The consensus estimate has fallen for next fiscal year, too, down 19 cents from $1.19 to $1.00 per share. Five analysts have also cut their estimates for this time period as well.

CHUY is now a Zacks Rank #5 (Strong Sell).

Right now, Chuy’s is facing some serious headwinds, from rising labor costs and intense competition, that’s causing a slowdown in growth.

However, the company hopes that by putting the brakes on its expansion plans for next year—Chuy’s is now going to open just five to seven new restaurants—it can focus on improving labor efficiency, tech initiatives, and profit margins.

If you’re an investor looking for a restaurant stock pick to add to your portfolio, you may want to consider BJ’s Restaurants (BJRI - Free Report) . This restaurant operator is a #2 (Buy) on the Zacks Rank, and currently expects over 64% earnings growth for the year.

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